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Spheris Reports Fourth Quarter and Year-End 2008 Results
Date:3/24/2009

FRANKLIN, Tenn., March 24 /PRNewswire/ -- Spheris, a leading global outsource provider of clinical documentation technology and services, today announced results for the three and twelve months ended December 31, 2008.

Financial Highlights--Fourth Quarter of 2008

Net revenues for the fourth quarter of 2008 were $41.8 million compared with $48.6 million for the fourth quarter of 2007. The decrease in net revenues was due to the impact of net lost business and lower average customer contract pricing.

Operating income was $4.7 million, or 11.2% of net revenues, for the fourth quarter of 2008 compared with $1.2 million, or 2.5% of net revenues, for the fourth quarter of 2007. The improvement in operating income was driven by increased utilization of the global production workforce and speech recognition technologies, in addition to lower marketing, selling and general and administrative expenses that resulted from the Company's cost-containment efforts. These improvements more than offset the decrease in net revenues noted above. Additionally, the improvement in operating income was aided by lower amortization expense as certain capitalized customer lists were fully amortized.

The Company defines Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, other expense or income, and restructuring charges. Adjusted EBITDA for the fourth quarter of 2008 was $9.1 million, or 21.8% of net revenues, compared with $7.3 million, or 15.0% of net revenues, in the prior-year period. The improvement in Adjusted EBITDA was due primarily to the operational cost savings described above.

Adjusted EBITDA is a financial measure not computed in accordance with United States generally accepted accounting principles, or GAAP. Please refer to the "Supplemental Financial Information" and related note contained in this press release for further discussion and reconciliation of Adjusted EBITDA to GAAP financial measures.

Financial Highlights--Year Ended December 31, 2008

Net revenues for the year ended December 31, 2008 were $182.8 million compared with $200.4 million in 2007. The decrease in net revenues was due to the impact of net lost business and lower average customer contract pricing.

Operating income was $5.6 million, or 3.1% of net revenues, in 2008 compared with $7.4 million, or 3.7% of net revenues, during 2007. During the first quarter of 2008, the Company recorded $1.3 million of expenses relating to a transaction that was not consummated. Excluding these transaction costs, operating income would have been $6.9 million, or 3.8% of net revenues, for the year ended December 31, 2008. In addition to the impact of the transaction costs, the decrease in operating income was due primarily to lower net revenues as described above. These costs were partially offset by operational cost savings from increased utilization of our global production workforce and speech recognition technologies, in addition to other cost savings initiatives.

Adjusted EBITDA was $27.7 million, or 15.2% of net revenues, in 2008 compared with $31.6 million, or 15.8% of net revenues, in 2007. Excluding the $1.3 million of transaction related expenses noted above, Adjusted EBITDA would have been $29.0 million, or 15.9% of net revenues, in 2008. In addition to the impact of the transaction costs, the decrease in Adjusted EBITDA was primarily due to the impact of lower net revenues.

Commenting on the fourth quarter and year-end 2008 results, Daniel J. Kohl, president and chief executive officer of Spheris, stated, "We had our fair share of success and disappointment in 2008. The positives included signing a five-year agreement with Community Health Systems, migrating the medical language specialists to the Cornerstone editor and increasing the volume of global and speech recognition lines. The biggest negative was significant lost business resulting in declining revenues. It is imperative we focus our energy on delighting customers."

Kohl added, "Our goal for 2009 is to get Spheris back on track. In order to do so, we must stabilize our current customer base, improve the performance of current technology, reduce costs, do an excellent job at converting the Community Health Systems business and sign new business. We have restructured the Company to focus aggressively on these objectives."

Balance Sheet and Liquidity Commentary

As of December 31, 2008, the outstanding indebtedness under the Company's senior secured credit facility was $73.2 million and the outstanding indebtedness under the Company's senior subordinated notes was $125.0 million.

As of December 31, 2008, Spheris held $3.3 million in unrestricted cash and cash equivalents. During 2008, the Company generated cash from operating activities of $1.4 million compared with $13.6 million of cash generated from operating activities during 2007. The majority of the decrease in cash generated from operating activities was due to changes in working capital and timing items, primarily the decrease in payroll liabilities that resulted from the timing of payments pursuant to the Company's bi-weekly domestic payroll cycle. Also, the Company utilized operating cash to fund certain insurance deposit amounts that are reflected in noncurrent assets on the Company's balance sheet. Cash flow was further negatively impacted by the decrease in operating income but was positively impacted by an increase in receivables collections.

Investor Conference Call and Webcast

Spheris will host a conference call on March 26, 2009, at 8 a.m. CT. The number to call for this interactive teleconference is (303) 262-2139. Following the conference call, the audio replay will be available for one week by dialing (303) 590-3000 and entering the confirmation number 11127079#. The live broadcast of Spheris' quarterly conference call will be available online at www.spheris.com and http://www.videonewswire.com/event.asp?id=56401 on March 26, 2009, at 8 a.m. CT. The online replay will be available on Spheris' Web Site shortly after the call and will continue for 30 days.

About Spheris

Spheris is a leading global outsource provider of clinical documentation technology and services to health systems, hospitals and group practices throughout the U.S. Spheris offers a highly advanced, Web-based technology platform blended with Spheris' outsource services. Spheris employs approximately 4,500 skilled medical language specialists supporting the Company's clients through a secure network. Using a Follow the Sun(SM) service strategy, customer support is provided 24 hours a day, 365 days a year with an emphasis on verifiable quality, turnaround time and pricing. Spheris' corporate headquarters are located in Franklin, Tenn. For more information, please visit www.spheris.com.

Forward-Looking Statements

This press release contains statements as to the Company's beliefs and expectations of the outcome of future events that are forward-looking statements as defined within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties as described in the filings made from time to time by the Company with the Securities and Exchange Commission, including, without limitation, the following: (i) the effect our substantial indebtedness has on our ability to raise additional capital to fund our business, to react to changes in the economy or our business and to fulfill our obligations under our indebtedness, including our ability to meet financial covenants and other conditions of our senior secured credit facility and indenture governing our senior subordinated notes; (ii) the recent global economic and financial market crisis has had and may continue to have a negative impact on our business and results of operations, (iii) capital markets are currently experiencing a period of dislocation and instability, which has had and could continue to have a negative impact on the availability and cost of capital, (iv) our history of losses and accumulated deficit; (v) our ability to effectively manage our global production capacity, including our ability to recruit, train and retain qualified medical language specialists and maintain high standards of quality service in our operations; (vi) our ability to support existing technologies as well as adapt and integrate new technology into our clinical documentation platforms to improve our production capabilities and expand the breadth of our technology and service offerings; (vii) our ability to maintain our competitive position against current and future competitors, including our ability to gain new business with acceptable operating margins and ongoing price pressures related to our technology and services and the healthcare markets in general; (viii) the reluctance of potential customers to outsource or change providers of their clinical documentation technology and services and its impact on our ability to attract new customers and increase revenues; (ix) financial and operational risks inherent in our global operations, including foreign currency exchange rate fluctuations and transfer pricing laws between the United States and India; (x) our ability to attract, hire or retain technical and managerial personnel necessary to develop and implement technology and services to our customers; (xi) the effect on our business if we incur additional debt and assume contingent liabilities and expenses in connection with future acquisitions or if we cannot effectively integrate newly acquired operations; and (xii) our ability to adequately protect our intellectual property rights, including our proprietary technology and the intellectual property we license from third parties.

The Company takes no responsibility for updating the information contained in this press release following the date hereof to reflect events or circumstances occurring after the date hereof or the occurrence of unanticipated events or for any changes or modifications made to this press release


                                   SPHERIS INC.
                    Condensed Consolidated Statements of Operations
                              (Amounts in Thousands)

                                     (Unaudited)
                                 Three Months Ended     Year Ended
                                      December 31,      December 31,
                                    2008     2007      2008      2007

    Net revenues                  $41,769  $48,597  $182,843  $200,392

    Operating expenses:
      Direct costs of revenues
       (exclusive of depreciation
       and amortization below)     28,491   35,290   131,266   144,094
      Marketing and selling
       expenses                       514    1,026     2,790     4,781
       General and administrative
        expenses                    3,706    4,953    21,043    19,892
      Depreciation and
       amortization                 3,893    6,101    21,613    24,273
      Restructuring charges           484        -       484         -
      Total operating costs        37,088   47,370   177,196   193,040

         Operating income           4,681    1,227     5,647     7,352

    Interest expense, net of
     income                         4,725    5,038    19,104    21,171
    Loss on debt refinancing            -        -         -     1,828
    Other expense                     414    1,240     1,852     1,570
      Net loss before income taxes   (458)  (5,051)  (15,309)  (17,217)

    Provision for (benefit from)
     income taxes                   9,439   (1,218)    3,870    (5,856)

         Net loss                 $(9,897) $(3,833) $(19,179) $(11,361)


                                SPHERIS INC.
                     Condensed Consolidated Balance Sheets
                   (Amounts in Thousands, Except Share Amounts)

                                                          December 31,
                                                         2008       2007

    Assets
    Current assets
      Unrestricted cash and cash equivalents            $3,262     $7,195
      Restricted cash                                      309        309
      Accounts receivable, net of allowance of
       $1,332 and $1,569, respectively                  28,510     33,595
      Deferred taxes                                       372      3,386
      Prepaid expenses and other current assets          4,430      4,460
        Total current assets                            36,883     48,945

    Property and equipment, net                         12,309     12,747
    Internal-use software, net                           1,586      1,932
    Customer contracts, net                                  9     13,968
    Goodwill                                           218,841    218,841
    Other noncurrent assets                              5,450      3,689
        Total assets                                  $275,078   $300,122

    Liabilities and stockholders' equity
    Current liabilities
      Accounts payable                                  $2,893     $4,237
      Accrued wages and benefits                         8,545     18,130
      Current portion of long-term debt and lease
       obligations                                         683         35
      Other current liabilities                          5,327      4,324
        Total current liabilities                       17,448     26,726

    Long-term debt and lease obligations, net of
     current portion                                   195,499    191,761
    Deferred tax liabilities                               300         92
    Other long-term liabilities                          5,710      4,857
        Total liabilities                              218,957    223,436

    Common stock, $0.01 par value, 100 shares
     authorized, 10 shares issued and outstanding            -          -
    Other comprehensive income (loss)                   (1,344)       564
    Contributed capital                                111,680    111,158
    Accumulated deficit                                (54,215)   (35,036)
        Total stockholders' equity                      56,121     76,686

          Total liabilities and stockholders' equity  $275,078   $300,122



                                 SPHERIS INC.
                  Condensed Consolidated Statements of Cash Flows
                             (Amounts in Thousands)

                                                      Year Ended December 31,
                                                       2008            2007

    Cash flows from operating activities:
    Net loss                                        $(19,179)       $(11,361)
      Adjustments to reconcile net loss to net
       cash provided by operating activities:
        Depreciation and amortization                 21,613          24,273
        Amortization of acquired technology              162             648
        Deferred taxes                                 3,222          (6,435)
        Change in fair value of derivative
         financial instruments                         2,593           1,112
        Amortization of debt discounts and issuance
         costs                                           851             833
        Restructuring charges                            484               -
        Loss on debt refinancing                           -           1,828
        Other non-cash items                             590             408
        Changes in operating assets and liabilities,
         net of acquisitions:
          Accounts receivable                          5,085             (19)
          Prepaid expenses and other current assets      (53)           (476)
          Accounts payable                            (1,450)          1,717
          Accrued wages and benefits                 (10,069)          1,556
          Other current liabilities                      (13)            (57)
          Other noncurrent assets and liabilities     (2,402)           (417)
            Net cash provided by operating activities  1,434          13,610

    Cash flows from investing activities:
    Purchases of property and equipment               (5,423)         (5,699)
    Purchase and development of internal-use
     software                                           (873)         (1,201)
    Purchase of Vianeta, net of cash acquired              -          (1,547)
            Net cash used in investing activities     (6,296)         (8,447)

    Cash flows from financing activities:
    Proceeds from debt                                 7,288          71,320
    Payments on debt and lease obligations            (4,451)        (76,066)
    Debt issuance costs                                    -            (583)
            Net cash provided by (used in) financing
             activities                                2,837          (5,329)

    Effect of exchange rate change on cash and
     cash equivalents                                 (1,908)          1,038
    Net (decrease) increase in unrestricted
     cash and cash equivalents                        (3,933)            872
    Unrestricted cash and cash equivalents, at
     beginning of period                               7,195           6,323
    Unrestricted cash and cash equivalents, at
     end of period                                    $3,262          $7,195

    Supplemental Schedule of Non-cash Investing
     and Financing Activities:
    Purchases of property and equipment and
     internal-use software through lease obligations  $1,019              $-



                                    SPHERIS INC.
                         Supplemental Financial Information
                               (Amounts in Thousands)

                                        (Unaudited)
                                    Three Months Ended        Year Ended
                                         December 31,         December 31,
                                       2008      2007       2008       2007
    Net loss                         $(9,897)  $(3,833)  $(19,179)  $(11,361)
    Depreciation and amortization      3,893     6,101     21,613     24,273
    Interest expense, net of income    4,725     5,038     19,104     21,171
    Loss on debt refinancing               -         -          -      1,828
    Other expense                        414     1,240      1,852      1,570
    Restructuring charges                484         -        484          -
    Provision for (benefit from)
     income taxes                      9,439    (1,218)     3,870     (5,856)

      Adjusted EBITDA                 $9,058    $7,328    $27,744    $31,625


Note to Supplemental Financial Information

The Company defines Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, other expense or income (including mark-to-market adjustments related to the Company's derivative financial instruments), and restructuring charges. Adjusted EBITDA is a financial measure not computed in accordance with United States generally accepted accounting principles, or GAAP. The Company believes that this non-GAAP measure, when presented in conjunction with the comparable GAAP measure, is useful to both management and investors in analyzing the Company's ongoing business and operating performance. The Company believes that providing the non-GAAP information to investors, in addition to the GAAP presentation, allows investors to view the Company's financial results in the way management and the Company's senior lenders view the Company's operating results. Management believes Adjusted EBITDA is useful as a supplemental measure of the performance of the Company's operations because it isolates the Company's operating performance from the accounting impact of the Company's financing strategies, tax provisions, and depreciation and amortization. Additionally, since Adjusted EBITDA is a significant component of certain financial covenants under the Company's senior secured credit facility agreement, management believes Adjusted EBITDA is useful for investors to better assess the Company's compliance with these financial covenants. Management believes Adjusted EBITDA should be considered in addition to, but not as a substitute for, items prepared in accordance with GAAP that are presented in this press release, as the items excluded in the presentation of Adjusted EBITDA are significant components in understanding and assessing financial performance. A reconciliation of Adjusted EBITDA to the nearest comparable GAAP financial measure is provided above. Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies.


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